Kevin Drum - October 2013

Unemployment in the euro area hit 12.2 percent in September, up from 11.5 percent a year ago. The inflation rate hit 0.7 percent, down from 2.5 percent a year ago. This suggests that Europe could tolerate a wee bit more stimulus in its economic policy, especially from its biggest and most powerful country.

So what was the response of Europe's biggest and most powerful country? Dismissing as "incomprehensible" U.S. criticism of Germany's continuing dedication to running trade surpluses, and then taking a shot at high U.S. debt levels.

I think that perhaps "incomprehensible" does not mean what they think it means.

Rate shock is the subject of the day, and I have to confess to a growing unease about it. Here's why. I think a lot of us expected that young people in good health might see higher premiums under Obamacare. This is largely because Obamacare mandates a maximum 3:1 ratio between premiums for the young and premiums for the old. Roughly speaking, this means that insurers are being forced to charge older buyers artificially low prices, and that in turn forces them to charge younger buyers more. Instead of, say, charging $100 and $500, the 3:1 ratio means they have to charge $150 and $450. In essence, the young are subsidizing the old. Add in the fact that Obamacare forces insurers to provide better coverage, and prices are going to go up even more.

But this means that older buyers shouldn't see all that much rate shock. After all, they're getting the benefit of that 3:1 ratio. And yet, they are. A couple of days ago I wrote about the case of Deborah Cavallaro, a 60-year-old woman in Los Angeles who had been profiled on the NBC Nightly News. She currently pays $293 for her coverage, but got a letter saying her plan had been canceled and a replacement would cost $478. I wondered whether her insurance company was simply trying to steer her into a high-cost plan, even though they knew she could do better on the exchange.

In a word, no. I headed over to the California exchange, entered the appropriate numbers, and found a bronze plan from Anthem Blue Cross for $479. Her insurance company wasn't playing any games.

But maybe this new insurance is better than her existing policy? Michael Hiltzik talked to Cavallaro, who told him that her current policy has a deductible of $5,000 a year, an out-of-pocket max of $8,500 a year, and two doctor visits per year with a copay of $40. (She pays full price for subsequent visits.)

And the Obamacare bronze policy? It has a deductible of $5,000 a year, an out-of-pocket max of $6,350 a year, and three doctor visits per year with a copay of $60. (Subsequent visits are full cost until the deductible is met.)

Now, when you dig into the details, this is indeed slightly better coverage. Lifetime caps are no longer allowed, for example. And Anthem probably would have increased the price of Cavallaro's policy for 2014 even if Obamacare didn't exist. On the other hand, the new plan might have a more limited choice of doctors than Cavallaro is getting now. This stuff is probably a bit of a wash, which means that, roughly speaking, the bronze policy costs $2,200 more per year in return for an out-of-pocket max that's $2,200 lower. Any year in which Cavallaro goes over this max, the Obamacare bronze policy will pay off. Any year in which she stays under it, she's on the losing end of the deal.

So....I'm not sure what to think about this. The lower out-of-pocket max is a good thing, but basically Cavallaro is now paying for it every year instead of only in the years where she goes over $6,350. It's hard to spin that as a good deal.

Generally speaking, I'm trying to steer a path between denial and panic on this stuff. As Justin Wolfers illustrates on the right, there are still way more winners than losers under Obamacare. Right now, most of what we're hearing is anecdotal, and we simply don't know how everything is going to work out in the end or how many people are going to end up with higher rates. In Cavallaro's case, as in many others, that will depend a lot on the subsidies she gets. But there's not much question that any year in which her income is high enough to put her over the subsidy cap, she'll end up paying quite a bit more for coverage that's only marginally better. It's no surprise that she's unhappy about it.

And the fact that this is happening to 60-year-olds, not just 20-somethings, is a bit of a surprise to me. I'm not going to panic over these stories yet, but the more of them I hear, the less that denial seems like a reasonable response either.

Via Andrew Sullivan, Connor Simpson passes along the latest results of the YouGov BrandIndex survey, which tells us which brands are the most trusted. Results for Republicans are on the right, and as you can see, Fox News has fallen so far it's not even in the top ten anymore. Nor is this just an election year aberration. Fox News ranked #1 in both 2011 and 2012 before it cratered this year. Simpson takes a crack at figuring out what happened:

So where did it all go wrong? Some trace the recent Republican-Fox divorce all the way back to last November, when poor Megyn Kelly roamed through the Fox hallways looking for an answer to Karl Rove's ridiculous question: why isn't Mitt Romney president?

....Right after the election, Slate's Allison Benedikt argued Republicans should stop trusting the network because of its impossibly close ties with the Republican Party if they want honest news. "After Karl Rove’s on-air freakout and the aforementioned MegynCam challenge, Fox was forced to acknowledge that Obama had won the damn election. And now what are they left with?" Benedikt asked. "A whole lot of viewers who are quite surprised to find that they are once again outnumbered by Americans who actually like better access to health care and don’t all keep Carrie Mathison-style timelines of the Benghazi cables on their living room walls." A Public Policy Poll released in January showed a serious decline in trust during the months after the election. Only 52 percent of those who identify as "somewhat conservative," said they trust Fox News, down from 65 percent last year.

Well, it would be nice to believe this, but I have to admit I'm having a hard time with it. You see, I haven't noticed any particular increase in conservative dedication to the values of truth and compromise and caring about the less fortunate. Quite the contrary. Perhaps you've noticed the same thing?

So I'm a little flummoxed. If conservatives are even more radicalized than ever—and all the evidence suggests they are—why don't they like Fox News as much as they used to? Maybe it's not really trust at all. Or at least, not trust in the usual sense. Maybe after Obama's election victory, they decided that Fox News had failed them. After all, the implicit promise of Fox News was an assurance that they were going to get rid of that Kenyan socialist in the White House, and they didn't deliver the goods. Maybe conservatives still trust Fox News in the usual sense of believing their version of events, but they no longer trust them to be effective.

Or, who knows? Maybe conservatives are just watching less TV. The History Channel suffered a pretty big plunge too. So two TV channels got replaced by Craftsman and Lowe's. Maybe they're all just retreating to their workshops?

Anyway, the whole thing is pretty weird. What's up with Welch's? How did they break into the top ten? Are Republicans drinking more grape juice these days? And why is Chick-Fil-A no longer highly trusted? I suppose that happened after their epic cave last year, when they traded in their anti-gay message for PR mush: "We are a restaurant company focused on food, service and hospitality; our intent is to leave the policy debate over same-sex marriage to the government and political arena." Just another bunch of losers.

Anyway, here are the full results for 2012 and 2013. Basically, liberals like Google and conservatives like Welch's. Feel free to make sense of that as you will.

A couple of months ago, Democrats agreed not to fiddle with the Senate's filibuster rules in return for Republicans agreeing to confirm several of President Obama's executive branch nominees. The last of the nominees was quietly confirmed this week, and you'll be unsurprised to learn that full-court obstruction reappeared instantly:

With votes slated for Thursday, Senate Republicans were poised to reject by filibuster the nomination of Rep. Mel Watt (D-N.C.) to head a major federal housing agency. Patricia Millett’s bid for a seat on the prestigious D.C. Circuit Court of Appeals also looked to be right on the margin of getting the 60 votes needed defeat a filibuster.

The two standoffs come as a group of other Republicans, led by Sens. Lindsey O. Graham (R-S.C.) and John McCain (R-Ariz.), have threatened to filibuster the nominations of Janet L. Yellen for Federal Reserve chairman, Jeh Johnson for homeland security secretary and a host of other presidential picks.

Sure enough, Watt and Millett have been blocked, and Yellen is being blocked two ways. Rand Paul plans to hold her nomination until he gets a vote on his father's "Audit the Fed" hobbyhorse, and Graham and McCain are blocking both Yellen and Johnson until they "get answers" on Benghazi.

So that's that. All of these are perfectly ordinary, well-qualified candidates without any special ideological baggage. Except that they're liberals, of course. Apparently that's enough. Republicans are back to war.

The international chemical weapons watchdog said on Thursday that Syria had met an important deadline for “the functional destruction” of all the chemical weapons production and mixing facilities declared to inspectors, “rendering them inoperable” under a deal brokered by Russia and the United States.

....The next phase of the timetable set down by the United Nations foresees Syria destroying its stockpiles of chemical weapons by mid-2014. Those weapons are reported to include mustard gas and sarin, a toxic nerve agent which the Obama administration says was used in the Aug. 21 attack.

I don't really have any comment about this, except to express a bit of puzzlement. As near as I can tell, Bashar al-Assad is really and truly sincere about destroying his chemical weapons stocks.1 But why? I very much doubt it's because he fears retaliation from the United States. And given his past behavior, it's hardly likely that it's driven by feelings of moral revulsion.

So what's his motivation? For reasons of his own, he must have decided that he was better off without chemical weapons than with them. Perhaps it has to do with the internal political situation in Syria. Or maybe Russia got fed up for some reason. But it's a bit of a mystery, and not one that I've seen any plausible explanations for.

1So far, anyway. Obviously things might change in the future. At the moment, though, it seems like he's genuinely being cooperative.

McDonald's operates a help line called McResource that offers advice to their employees. Among other things, that means directing workers to government programs that can help them, such as food stamps. At the Guardian, Sadhbh Walshe wants to know why conservatives are OK with this. If they hate welfare programs, why are they "seemingly okay with hugely profitable corporations exploiting these programs while they underpay their workers?" This is in the context of an argument for raising the minimum wage to $15, but Adam Ozimek says it's misguided:

Conservatives believe that minimum wages lead to more unemployment, and people on unemployment are going to rely on more not less public assistance....So if you’re going to try to sell them on an argument that a higher minimum wage will lead to less food stamps you’re wasting your time. You may succeed in raising their ire more about food stamps, but you’re simply not going to sell them on a minimum wage with these arguments. My guess is those who write or cheer pieces like this are simply too cloistered in their own ideological bubbles to understand that.

Maybe. At a guess, though, it doesn't really make any difference. Conservative politicians don't oppose increases in the minimum wage because they think it increases unemployment. After all, they oppose even modest increases that, by almost unanimous consensus, don't have any noticeable effect on unemployment. The truth is that they simply oppose business regulations, and the minimum wage is a business regulation.

Of course, this still means that Walshe's argument is falling on deaf ears. That's OK, though, because she's only talking to conservatives in a rhetorical sense anyway. It's the Guardian! The real goal here is to keep pressing a campaign that, eventually, might move the Overton Window among liberals and centrists. Those are the people who might nod along with the minimum wage argument.

So what's the answer? Should we substantially raise the minimum wage? In one sense, I doubt that it would make a big difference. If you raise the wages of fast food workers, you help fast food workers. But you also raise the price of fast food. And who buys fast food? Mostly poor and middle-class folks. But our biggest problem of the past few decades has been a massive redistribution of economic gains to the rich, and since the rich don't eat much fast food, this would mostly leave them unaffected.

Still, it would help a bit, and certainly there are other minimum wage occupations that affect the rich more than fast food. And since most minimum wage jobs are in the nontradable sector these days, a big increase isn't likely to send jobs overseas. For the most part, the kinds of jobs that can be lost to China and Indonesia are either already gone or already pay more than minimum wage.

The bigger wild card is whether a substantially higher minimum wage would make automation more cost effective, thus replacing workers with machines at a higher rate. Regular readers know that I think the use of automation is going to accelerate no matter what we do, and with a tail wind like that already in place, it's certainly possible that a big increase in the minimum wage would put people out of work even faster. But at this point, nobody knows. We simply don't have enough experience to understand what would happen.

I am, generally, in favor of paying people for work rather than giving them means-tested welfare benefits. For that reason, I like the idea of a higher minimum wage, just as I like the idea of the EITC. At the same time, though, I doubt that this would be a truly progressive reform. Welfare benefits are paid out of the general fund, which means that the money comes from income tax receipts. In other words, it primarily comes from the well off, who pay the bulk of the income tax. A higher minimum wage, by contrast, mostly raises the price of goods and services. This hits everyone equally—or maybe even regressively.

I'm still in favor of a higher minimum wage because I believe there's a minimum amount that any working adult should expect to receive for an hour's labor. But it's no panacea. For all its faults, our current system of social welfare is pretty progressive, and given the enormous redistribution of wealth we've seen over the past 30 years, that's probably the most important feature to keep in mind. Ironically, it's also a reason that conservatives should prefer a minimum wage increase: because it's less progressive than food stamps or Section 8 vouchers. We've come full circle to Walshe's original argument.

POSTSCRIPT: For the record, I should note that I mostly agree with Ozimek's post. "Food stamps are an excellent program. It really is the sort of basic safety net that should have near 100% support. The recent cuts to the program only amounted to a 5% change, but there are larger changes being considered. Let’s not try to undermine this program further by putting it on the corporate welfare radar of Tea Party republicans."

I complain periodically about reporters who make boneheaded arithmetic mistakes—the kinds of errors that are off by a factor of 10 or 100 and should have set off instant alarms. But Felix Salmon points out today that it's also easy to make the opposite kind of error: insisting on numerical accuracy that simply doesn't exist and doesn't matter. The issue at hand is the Norwegian guy who bought $25 worth of bitcoins in 2009, forgot about them, and recently discovered that they were worth $850,000. Sweet! But wait. Was it really $25? Or was it $22? Or $27? Anthony DeRosa was unhappy that different news accounts provided different numbers, but Salmon explains what happened:

It turns out that the reason for the disparity is very simple: the dollar-krone exchange rate fluctuated quite a lot in 2009, and it was unclear exactly when the bitcoins were purchased, so no one knows exactly how much the coins were worth, in dollar terms, when purchased. They might have been worth $22, or they might have been worth $27. Really, it doesn’t make any difference: the man made a profit of well over $850,000 whatever his initial investment was.

But there’s a superficial exactness to numbers that doesn’t exist in words, and so people have a tendency to believe that all numbers are much more precise than in fact they are. If the Labor Department releases a report saying that payrolls rose by 148,000 in September, then a reporter who said that payrolls rose by 150,000 would be considered to have her facts wrong — even though the headline number is only accurate to within 100,000 people either way. The actual number of new jobs could easily be anywhere between 44,000 and 252,000 — and indeed there’s a 5% chance that it’s outside even that large range. But because everybody insists on one hard number, one hard number is what they get.

One of the most important skills in financial journalism is numeracy — having a basic feel for numbers. In this case, the reporters covering the story got the numbers right: they should be applauded for that, rather than having brickbats thrown at them.

Yep. In general, reporters should be more careful with numbers, but ironically, that sometimes means being less exact. Some numbers just aren't precise, and we'd all be better off if we accepted it. Pretending to a precision that doesn't exist is as bad as tossing out a sloppy estimate when a few minutes of work would provide you with the real answer.

Is there a way to save Social Security without raising taxes — and make it better? There is, and it has nothing to do with privatization or personal accounts.

What follows is an interview with Andrew Biggs, a colleague of his at the American Enterprise Institute and a former principal deputy commissioner of the Social Security Administration. So let's hear what Biggs has to say:

Today we spend over $700 billion each year on Social Security benefits, yet 9-10 percent of seniors in America are living in poverty. You could give every retiree in America a poverty level benefit for half the cost of the current Social Security program.

....My solution is if you want middle and upper class people to save for retirement, tell them to save for retirement. Say everybody has to sign up for a 401(k) with their employer. Their employer has to match their contributions. That’s going to go a long way towards solving this problem because if everybody’s saving, then Social Security’s job is easier.

....The benefit would be paid irrespective of your earnings and labor force participation. It’s a universal retirement benefit. New Zealand and a few other countries have the universal pension. The idea is, We’re going to pay you these benefits, so you’re not going to starve. This is going to take the place of sort of the redistributive end of Social Security, also take the place of a number of welfare programs like Supplemental Security Income.

Nobody will get a benefit below the poverty line. The poverty rate among seniors should go from 9 percent to 0 percent. But nobody will get a benefit above the poverty line. If you want more than that, you have to save for it. That’s where these individual-based accounts come in.

I thought this plan had nothing to do with personal accounts. But it does. Biggs explicitly says that we should make 401(k) contributions mandatory, which sure sounds like a personal account to me.

As for benefits, the current poverty level for an individual is $11,500. According to the Social Security Administration, about 70 percent of beneficiaries currently receive benefits above that level. So the Biggs plan would amount to a substantial cut in individual benefits for most retirees.1

So what this proposal boils down to is this: Cut future benefits dramatically for most people; increase benefits for a few people; and put in place a forced savings plan to make up the difference. There's nothing very new about this, and it fails on both of the initial promises: to make Social Security better and to do it without personal accounts. I think it also explains the "natural skepticism" that Biggs (accurately) says liberals have with conservative reform proposals, which he chalks up to the fact that "Republicans have often treated Social Security as a budget problem to be solved by cutting spending rather than treating it as a program that they want to fix." He's right. But this is just more of the same.

1The size of the cut depends a lot on the details of Biggs' plan. What's the retirement age? Do married couples get two individual benefits or a single poverty-level benefit for two? What about disability payments? Etc. However, Biggs says his program will cost half of what the current program costs, so regardless of details, he's plainly counting on a substantial average drop in benefit payments.

But once you get past the generic questions and ask about approval/disapproval of actual members of Congress, the picture turns sharply. I've combined two charts to show what happens when you ask people in battleground districts about their own representatives:

In Democratic districts, net incumbent approval has plummeted by 11 points, from +8 approval to +3 disapproval. In Republican districts, incumbent approval has gone down only 4 points. You see the same results when they ask a question about warmth of feeling toward incumbents: It's down 7 points in Republican districts and 9 points in Democratic districts.

This isn't good news for Democrats. It's true that attitudes toward the Republican Party have taken a bigger hit than attitudes toward the Democratic Party, but attitudes toward actual incumbents are exactly the opposite. And in elections, that's what matters.

POSTSCRIPT: There's also a very weird result (on slide 20) showing that voters in Republican districts are more eager for their representatives to work with President Obama than voters in Democratic districts. I have no idea what to make of this. In fact, it's so strange that it makes me wonder if there's something wrong with this poll.

As we all know, the NSA has a program called PRISM that allows it to collect vast amounts of information from companies like Google and Yahoo. Apparently, though, PRISM isn't vast enough. The Washington Post reports today that NSA collects even vaster amounts under a program called MUSCULAR that has hacked into the internal networks where documents are moved around before they're encrypted:

According to a top secret accounting dated Jan. 9, 2013, NSA’s acquisitions directorate sends millions of records every day from Yahoo and Google internal networks to data warehouses at the agency’s Fort Meade headquarters. In the preceding 30 days, the report said, field collectors had processed and sent back 181,280,466 new records — ranging from “metadata,” which would indicate who sent or received e-mails and when, to content such as text, audio and video.

....The MUSCULAR project appears to be an unusually aggressive use of NSA tradecraft against flagship American companies. The agency is built for high-tech spying, with a wide range of digital tools, but it has not been known to use them routinely against U.S. companies.

....For the MUSCULAR project, the GCHQ [the British counterpart of the NSA] directs all intake into a “buffer” that can hold three to five days of traffic before recycling storage space. From the buffer, custom-built NSA tools unpack and decode the special data formats that the two companies use inside their clouds. Then the data is sent through a series of filters to “select” information the NSA wants and “defeat” what it does not.

This is apparently all done overseas in order to evade rules that govern domestic data collection. According to the story, "Two engineers with close ties to Google exploded in profanity when they saw the drawing." As always, read the whole thing.